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Crowdfunding is growing… Up!

Until recently, crowdfunding has been limited to what amounts to “charitable giving” via online platforms. You may have heard of Kickstarter who is currently one of the largest online platforms in the crowdfunding arena. When they arrived on the scene, the lending market for small business was forever changed.

Now, the JOBS Act, which formalizes a lot of the rules and regulations surrounding crowdfunding, has allowed investors to take equity stakes in the companies they fund through online platforms. “Charitable giving” has not been replaced but, it will be interesting to see how much of the giving switches to the equity model. There are limitations on investors (investor net worth, annual fundraising limits and individual investment limits to name a few) and there is a much more involved set up process for small businesses who, at a minimum, must incorporate and set up shares of stock in their company. These hurdles will help slow a mass migration away from the legacy crowdfunding platforms.

Online funding portals operated by intermediaries must also be set up to handle the specialized transactions generated by equity crowdfunding. Each of these intermediaries must be registered with the Securities and Exchange Commission (SEC) and the Financial Industrial Regulatory Authority (FINRA).

If you would like to learn more about this new funding model, check out some of the online platforms set up to coordinate these transactions: